SNB loses 14 billion francs from euro intervention

The Swiss National Bank (SNB) confirmed on Wednesday that its currency market interventions have sent its half-year figures into the red.

"Sharp appreciation of the Swiss franc, in particular against the euro, resulted in exchange rate losses of over 14 billion francs," said the SNB in a short statement.

The SNB is a publicly listed entity on the Zurich stock exchange. Shares fell 2.5 percent on Wednesday closing at around 980 francs.

Public shareholders – cantons and cantonal banks – hold around 55 percent of the 25 million francs worth of the stock with most of the remainder owned by private individuals.

The announcement will soften the ground ahead of the bank’s official results statement on August 13, when it is expected to report a total net loss of 4 billion francs for the first six months of 2010.

Previous inaccuracies by media reporting on the bank’s financial position encouraged the SNB to publish a stand-alone profit-loss alert for only the second time.

"It’s not the exact information about the half year results," said SNB spokesman, Nicolas Haymoz.

"Every month we publish information about the balance sheet of the bank . . . some journalists try to make their own calculations and they make mistakes," said Haymoz.

The bank’s balance sheet has taken a beating from buying the single currency.

It has spent 132 billion francs to try to hold back the surging franc, while boosting demand for the falling euro.

The euro-franc exchange rate has fallen by more than 15 percent since last August.

On July 1 the single currency dipped beneath 1.31 francs.

"We don’t think that the currency losses are a major problem for the SNB," said bank Sarasin currency analyst, Ursina Kubli.

The euro purchases "weren’t an investment idea . . . the currency losses had to be expected," she said.

The SNB has incurred the losses amid concerns over the debt problems of euro zone countries and rumours over the future participation of some European states.

Investors have flocked to the franc as a safe haven currency.

"These are costs the SNB has to take to support the export industry in a time of recession," said Kubli.

According to additional data published on Wednesday, more than 70 percent of the SNB’s foreign exchange assets are in euros, versus 46 percent five years ago.

The SNB holds a total of 160 billion francs worth of the single currency, more than five times the amount held at this point last year.

In addition the bank holds less than 50 billion francs worth of US currency – which has declined ten percent against the franc since the start of June – and less than 9 billion francs worth of pounds sterling.

The Swiss currency has also risen by some ten percent against the US dollar since the start of June.

Haymoz told Swisster the bank may continue to increase its euro holdings as long as it meets Switzerland’s economic interests.

Nearly seven months into 2010, consumer confidence is at its highest level since mid 2007, according to the index published by SECO, the federal economic secretariat.

Nonetheless French bank BNP Paribas, which publishes a currency Global Bias Indicator, still positions the franc as the strongest currency on its index, making it tougher on companies exporting goods and services to the euro zone.

Workers’ group Union Syndicale Suisse said this week the strong franc could also threaten up to 30,000 jobs.

The SNB expects to offset the bad news by posting good results on August 13 about income from the foreign exchange holdings and a boost in the value of its vast gold reserves.

"At the moment the franc has weakened a little bit but I doubt that this will continue over the summer,” said Kubli.

"The US economy might dip into a second recession. When growth worries turn global, demand will grow for the Swiss franc. It is one of the classic safe haven currencies."

"We are forecasting it will continue to appreciate," she said.

The SNB’s primary role is to create price stability – enacting a policy that wards off deflation and prevents inflation outpacing targets.

But it also has a mandate to ensure an appropriate environment for economic growth, including providing assistance to Swiss exporters through buying euros.

"There is no defined limit," said Haymoz.